Did you know it costs most businesses between $15 and $25 to write and mail a cheque? Sometimes, it’s even more! Surprising, eh? This is why payment platforms exist.

Payment platforms first originated to help businesses facilitate easier payments. One of the first-movers in Canada was Telpay – who literally started with telephones. 

Now, there are so many payment platforms available it seems like a new one is popping up every week. All of them are now cloud-based (Though Telpay does still offer the telephone options…)

Revenue Model

Payment platforms make money in 2 ways:

1. Fees they charge, which could include:
   1. Monthly subscription fees
   2. Transaction fees
   3. Premiums on exchange rates (Canadian banks hide a 3% mark-up on exchange rates whenever you exchange money).
   4. Other fees (like the fee for charging you a fee, fee).
2. The London Inter-Bank Overnight Rate (LIBOR). This is the interest banks receive based on what they hold in their accounts overnight. For payroll companies such as ADP and Ceridian, the fees they charge don’t cover their costs. They make more revenue on the LIBOR as they frequently hold billions of dollars at a time. This is why banks and other financial institutions hold payments for a day or more.

All are not Equal

Like all businesses, not all platforms are created equally. When selecting a platform, we have a few suggestions about criteria you use to evaluate whether or not they’re a good fit for your business. Some considerations include:

• Where are they located? With increasing anti-Canadian sentiment from the US, political uncertainty, and a trade-war that’s just heating up, you may want to consider a Canadian based payment platform such as Telpay or Plooto that won’t be subject to the whims of a foreign politician or laws in foreign jurisdictions that may not align with Canada.
• Are they compliant? All payment platform companies ought to be compliant with FINTRAC and AML (Anti-Money Laundering) laws. If not, they shouldn’t be considered.
• Do they give you what you need? There are a lot of payment platform companies who cannot provide proper statements or reports (Some of them may shock you). It’s your money, and it’s your right and responsibility to take care of it. If the payment platform does not offer transparency, reconsider your options.
• How much does it cost? We recently left a payment platform because we realized just how expensive it was. In some instances, our fees for making a payment approached 20%. 
• Their fee structure was opaque and we couldn’t figure out how to make the best decisions for our business – so we moved to a Canadian platform with transparent pricing, which was the best decision for our business.
• Do they integrate with your technology? Most payment platforms integrate with cloud-based accounting systems and major financial institutions. However, you should get user-based reviews on how well those integrations work.
  • For instance, some platforms don’t integrate very well at all, creating a lot of manual workarounds. Others require a third-party app to bridge the data between the payment platform and the accounting software. 
• It’s important to get a real-life understanding of how these integrations work and if they’ll serve your needs. Don’t just accept what the marketing says or what a salesperson says about the product.
• Do they work both ways? Some payment platforms can only help you send money out, but some allow you to request payment. Depending on the needs of your business, you might want to consider using a platform that helps you get paid, as well as pay others.

Less is More

Picking one or two payment platforms is best. When it comes to bookkeeping, fees are based on the amount of work required. If you’re running 4 payment platforms, that’s 4 times the work of having one. 

There’s more technology to learn, more vulnerabilities to your processes, and a lot more inefficiencies.  We’d highly recommend having distinct reasons for choosing the payment platforms you use.

A Word of Warning

Many payment platforms offer a digital wallet to facilitate faster and easier payments. Payment platforms are not banks and are not CDIC (Canada Deposit Insurance Corporation) insured. That means, should they be hacked and your wallet emptied, those funds would not be insured.

Security

A big argument we often hear against anything cloud-based is security.

Most payment platforms are using at least bank-level encryption and security protocols. Sometimes, they are using military-grade encryption and security tools. If you have an account with a major bank in Canada, you are already in the cloud, so you’re already exposed.

Since these platforms are cloud-based, back-ups and disaster recovery are vital to their success, so they need to have robust policies and procedures in place. Their policies and procedures are much better than those of most paper-based departments and organizations.

Finally, since these organizations are smaller and more agile than larger companies, they can deploy regulation and compliance updates quickly. This doubles for internet security risks.

When considering a payment platform, ask about how they ensure security.

The Big Payoff

So what we really want to know is why… Why should we consider switching from our comfortable, old way of doing things, to a payment platform?  Here are some thoughts for your consideration:

1. Save money for your business – This could be on fees, on labour costs and storage costs. The cheque you bought may have only cost $1 when you bought it in bulk for $400, but the time that goes into writing and signing the cheque, and the other ancillary costs, such as storing copies and supporting paperwork, that are required, is what leads to using physical cheques being expensive.
2. Save time – If your business has policies about signatures and approvals, those can be set-up in most payment platforms. This removes the requirement for signatories to review folders of paper as they sign cheques, and removes the possibility of paper getting lost in transit or left on someone’s desk.
3. Automate – This could include all kinds of scenarios. For instance, your accounts payable from your accounting software and your payment platform will sync, allowing you to see what is owed, and even being able to issue or set-up delayed payments. Then, when the bill is paid, the software will sync showing that the bill has been paid and the money has left your account. You won’t need to look at your e-transfer history or PayVendors history to see who you paid and why – everything is integrated.
4. Scalability – Since payment platforms integrate with your technology and can be coordinated across an organization, they provide an opportunity for scale with less cost.
5. Flexibility – Payment platforms offer payment options in different currencies. This means you don’t necessarily need to maintain a US dollar account to pay your US vendors or receive payments from your US customers. Also, you won’t need to have to wait for the boss to be pinned down in order to sign cheques. Now, they can access the payment platform from anywhere to issue payments.  This removes another delay and time-consuming process associated with traditional payment methods.

Getting Started

If these ideas make sense to you, it would be a good idea to think about what the critical elements you’d need from a payment platform would be. Then, you can consider how this would fit into your systems, and if necessary, map out where the cost savings would outweigh the new costs being incurred.

If you need help navigating this decision, KATA is here for you!